- The latest fund position report shows a further decline across all three agri commodities, with soybeans scoring the largest net short position since we have been charting the data in January 2012. The combined fund position across soybeans, corn and wheat is now net short with only corn clinging onto a small long position. As ever we have to be mindful of the consequences of any change of heart by the funds and its impact upon prices, although at this time we are not concerned at this happening in the short to medium term.
- CBOT electronic markets reopened after the holiday weekend at 2:30pm UK time and gapped lower, pretty much as expected and posted losses throughout the session. Favourable weekend weather prompted losses although profit taking finally offered a degree of support and stemmed further losses. Fund selling was evident in soybeans and meal as well as wheat and it is expected that liquidation in their corn position will be inevitable if weather conditions remain as they are.
- Soybean crop ratings were 72% good/excellent, unchanged week on week and improved on last year’s 67%. Corn is unchanged week on week at 75% good/excellent and up from 68% year on year. Spring wheat is 70% good/excellent, unchanged week on week and down from 72% year on year. Finally, winter wheat is 31% good/excellent, up 1% week on week but down from 34% year on year. The crop is now 57% harvested, up from 43% week on week and 55% year on year.
- Overall, CBOT grains hit prices not seen since 2010, four year lows! The trigger for moving higher four years ago was the start of the drought conditions in Russia – how time flies! The key determinant being the massive looming US corn crop as well as abundant global wheat output. Levels look set to go lower unless we see some significant shift in weather conditions. If we look back at historical prices (to see if any repeatable patterns exist) the sharp losses seen following the Independence Day holiday are more frequently than not followed by month long declines in price (in soybeans and corn). Given the reasonably consistent pattern shown (13 out of 15 years), we would be happy to follow such a pattern and favour shorts in the coming four weeks or so.
- In years where weather conditions across central US regions are uniformly good and temperatures average near or below normal in the key pollination growth phase, corn yields tend to be record large. This year is displaying exactly these criteria. Forecasts continue to suggest little to change, and as such the prospect for a bumper corn yield remains high.
- Russian wheat crop estimates are rising due to better than expected winter wheat yields and recent rains across the Volga and Siberian regions. Expectation of a crop some two or three million mt above the USDA’s estimate of 53 million mt are being widely discussed. This is important as global FOB wheat prices are heavily influenced by the exportable surplus in Russia. If Black Sea/EU prices retest the $240/mt FOB level it will make any rally in US levels untenable from any fundamental viewpoint.
- The coming USDA WASDE report, on 11 July, is expected to highlight record large US 2014 soybean seedings as well as reduced corn feeding during Q3. Many also expect a negative US residual soybean usage to reflect their understated 2013 crop. As such a further bearish set of data is anticipated – but as we all know the USDA has a habit of springing surprises, so caution should remain.
- Wheat in Paris hit five month lows on the back of US prices as well as weaker Black Sea prices. Talk of rain and additional feed wheat in Balkan regions as well as tighter delivery specifications than those of the futures contract further pressured prices. Any weather issues in France could make the MATIF contract a tricky one to trade (being a deliverable contract), which will be interesting to watch.
- All in all, it is difficult too see anything bullish at this time, we remain committed bears and look to sell any rally of note.